Jill Calton, senior vice president and director of alternative investments at UMB Fund Services, discusses insights from a recent alternative investment survey conducted through a partnership with the Hedge Fund Association. A recent survey of hedge fund managers, investors, and wealth advisors provides insight into differentiation opportunities and challenges within alternative investments and fund management.

Earlier this year, UMB Fund Services partnered with the Hedge Fund Association‡ to survey alternative investment managers, institutional investors and industry executives. There were some clear takeaways from survey respondents, including a continued demand for customized reporting as managers look to differentiate and raise capital through unique investment strategies.

Uncorrelated investment strategies set firms apart

Respondents were asked what was the most impactful way for them to differentiate themselves from the competition. Uncorrelated investment strategies were the most cited, with fees ranking as the least impactful point of differentiation. As institutional investors look for ways to diversify their exposure and align their portfolio with their risk tolerance, we continue to see demand for strategies uncorrelated to overall market conditions.

Firm reputation followed close behind as a key differentiator for managers looking to raise capital in a competitive environment. While reputation is critical in any industry, for alternative managers, communication with sophisticated investors requires moving beyond performance and track records. In our opinion, managers must communicate their broader firm story, including details about their values, culture and processes to stand out. For many, that means revisiting the effectiveness of their public relations, digital marketing and communication efforts.

Capital raising is always a hurdle

Not surprisingly, when it comes to new product development, capital raising continues to be the greatest hurdle. When asked about the biggest challenge they are facing, capital raising was cited the most – by far. When I recently spoke with Private Equity Wire, I discussed how some managers are moving into unique investment types‡ in an effort to attract new investors.

The second most cited hurdle was regulatory and tax implications. Administrators are frequently working with fund managers on the various regulatory and tax implications for the investment types they want to deliver to market. Depending on fund registration and structure, there are complex regulatory and tax considerations that need to be evaluated. There has been significant impact to the asset management industry because of recent U.S. tax reform. Key support can be provided by partners with tax expertise across a broad spectrum of product and investment types.

Customization is critical

Customization was identified by survey respondents as the greatest challenge related to investor reporting. Whether the need for customized reporting is being driven by the investor or by the unique investment strategy, alternative managers may need to customize everything from the financial allocation process to the investor reporting capabilities.

For managers tied to outsourced accounting or reporting systems that are slow to implement changes, customization can be a major hurdle. In the private equity space, where many managers have not outsourced accounting or reporting functions, customized processes may introduce a burdensome level of manual workarounds. This can add pressure on a firm’s operational infrastructure as well as introduce added risk into the equation.

Meeting client needs through technology

It is critical that fund administrators are quickly adaptable in an ever-changing market environment. Using key insights like those gathered from the survey help to improve products and services to meet client needs now and into the future.

At UMB, we work with clients to define the fund servicing needs that will support their goals. Then, we leverage our state-of-the-art proprietary accounting and reporting system, FastPro, and an in-house developer team to meet any nuanced or complex requirement.

Our goal is to position clients for success regardless of the investment strategy they want to deliver to market. Delivering seamless operations at the back-office is critical, so managers have the utmost confidence to launch.

Visit UMB Fund Services’ website, and follow us on LinkedIn to stay informed of the latest trends in fund administration. Read the full survey results here.‡Based on this piece, we think you might also be interested in reading the following blog posts:

When you click links marked with the “‡” symbol, you will leave UMB’s website and go to websites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other websites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.

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Jill Calton

Jill Calton is senior vice president, Director of Alternative Investment Operations, for UMB Fund Services and provides leadership and oversight to all of the company’s alternative investment client servicing teams.

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